Business Context and Reporting Period
The filing is a Form 10-Q for Reviv3 Procare Company, not Axil Brands, Inc.; investors should verify the issuer identity. It covers the three and nine months ended February 28, 2018, with unaudited financial statements compared with the periods ended February 28, 2017. The company manufactures, markets, sells and distributes professional hair and skin-care products in the United States, Canada, Europe and Asia, using outsourced manufacturing partners.
Key Financial Metrics
| Metric | Three months ended Feb. 28, 2018 | Nine months ended Feb. 28, 2018 | Comparable period |
|---|---|---|---|
| Sales | $219,254 | $466,408 | $157,586 / $464,064 |
| Gross profit | $84,018 | $219,049 | $83,848 / $261,476 |
| Gross margin | 38% | 47% | 53% / 56% |
| Operating loss | $(111,978) | $(337,956) | $(109,672) / $(333,141) |
| Net loss | $(112,910) | $(340,937) | $(109,667) / $(333,136) |
| Net loss per share | $(0.00) | $(0.01) | $(0.00) / $(0.01) |
At February 28, 2018, cash was $256,835, total current assets were $695,670 and current liabilities were $204,834, implying a current ratio of approximately 3.4x. Inventory was $267,398 and supplier advances were $129,089. Total assets were $719,781, liabilities were $204,834 and stockholders’ equity was $514,947. The company had no material long-term debt reported; liabilities primarily consisted of accounts payable, accrued expenses and customer deposits. Related-party payable was $210.
For the nine months, net cash used in operating activities was $439,525, compared with $235,273 in the prior period. Investing cash use was $4,123, while financing provided $283,610, principally from common-stock issuances. Cash declined by $160,038 to $256,835. The company reports no external credit facility or material off-balance-sheet arrangement.
Material Changes Versus the Prior Comparable Period
- Third-quarter sales increased 39% to $219,254, primarily due to sales to a new direct customer.
- Nine-month sales were $466,408 versus $464,064, a change of approximately 0.5% based on the reported amounts. The MD&A describes this change as an 11% increase, which does not reconcile to the financial statements.
- Nine-month gross profit decreased 16% to $219,049, and gross margin declined to 47% from 56%. Management attributed the decline to higher shipping costs, lower-margin sales to the new direct customer and a $11,496 inventory write-off after termination of a Hong Kong distribution arrangement.
- Nine-month operating expenses declined 6% to $557,005, primarily because of lower stock-based consulting compensation, employee compensation and freight-out marketing costs, partly offset by higher professional, rent and travel expenses.
- Nine-month net loss increased to $340,937 from $333,136, despite lower operating expenses, because of lower gross profit and approximately $2,981 of net other expense.
- Inventory increased to $267,398 from $129,794 and supplier advances increased to $129,089 from $16,135, contributing materially to operating cash use.
- The company issued common stock for approximately $283,400 in cash during the nine months and issued 80,000 shares valued at $20,000 for consulting services. Shares outstanding increased to 40,505,047 from 39,679,047.
Guidance, Outlook, Risks and Unusual Items
No formal revenue or earnings guidance is provided. Management expects losses to continue during fiscal 2018 and states that the business plan depends on increasing product sales and obtaining additional capital.
The financial statements include a going-concern warning. Management states that the nine-month net loss, $439,525 of operating cash burn and accumulated deficit of $4,486,565 raise substantial doubt about the company’s ability to continue for 12 months after issuance. Management intends to seek additional financing through a private or public offering, but provides no assurance that funding or sufficient revenue will be obtained. Failure to obtain financing could result in cessation of operations or bankruptcy proceedings.
- Customer concentration is significant: three customers represented approximately 54% of nine-month sales, and three customers represented approximately 81% of accounts receivable.
- Supplier concentration is also significant: three vendors represented approximately 82% of purchases during the nine months.
- Customer deposits were $135,610, compared with $20,246 at May 31, 2017, and are recognized as revenue only upon product delivery.
- The company terminated its Hong Kong distribution agreement in February 2018; $11,496 of consigned inventory was abandoned and charged to cost of sales.
- The company has a California facility lease with approximately $142,917 of remaining minimum payments, including $20,988 due within one year.
- Cash exceeded FDIC insurance limits by approximately $14,000 at February 28, 2018.
- The company reports no material litigation and states that disclosure controls were effective, with no material changes to internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm whether this filing belongs to Axil Brands, Inc. or Reviv3 Procare Company, as the supplied filing identifies Reviv3 Procare Company throughout.
- Reconcile the MD&A’s stated 11% nine-month sales growth with the reported figures, which indicate approximately 0.5% growth.
- Assess the company’s ability to raise capital and fund operations in light of the explicit going-concern warning and $439,525 operating cash burn.
- Evaluate whether inventory and supplier advances can be converted into sales and cash without additional markdowns or write-offs.
- Review customer and supplier concentration, including the dependence on a new direct customer and three major vendors.
- Consider dilution from future equity financing and the related-party stock sale of 375,000 shares for approximately $150,000.